Using a structural Vector Autoregression approach, this paper compares the macroeconomic effects of the three main government spending tools: government investment, consumption, and transfers to households, both in terms of the size and the speed of their effects on GDP and its components. Contrary to a common opinion, there is no evidence that government investment shocks are more effective than government consumption shocks in boosting GDP: this is true both in the short and, perhaps more surprisingly, in the long run. In fact, government investment appears to crowd out private investment, especially in dwelling and in machinery and equipment. There is no evidence that government investment “pays for itself” in the long run, as proponents of the “Golden Rule” implicitly or explicitly argue. The positive effects of government consumption itself are rather limited, and defense purchases have even smaller (or negative) effects on GDP and private investment. There is also no evidence that government transfers are more effective than government consumption in stimulating demand.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number
277.
Length: Date of creation: 2004 Date of revision: Handle: RePEc:igi:igierp:277
Contact details of provider: Postal: via Rontgen, 1 - 20136 Milano (Italy) Phone: 0039-02-58363301 Fax: 0039-02-58363302 Web page: http://www.igier.unibocconi.it/
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)